Marlin Business Services Corp. reported third quarter 2021 net income of $5.5 million compared with net income of $10.3 million in the prior quarter, and net income of $2.7 million a year ago.

Commenting on the third-quarter results, Jeffrey A. Hilzinger, Marlin’s President and CEO, said, “Operating results continue to improve as we emerge from the pandemic. I am also pleased with the significant progress made in our ongoing effort towards satisfying the conditions to close the proposed merger with a subsidiary of funds managed by HPS. Given this recent progress, we believe the total costs in connection with the de-banking process will not result in a share price adjustment and now believe we could close the transaction within the first six weeks of 2022.”

Update on Acquisition by Funds Managed by HPS Investment Partners LLC
On April 19, 2021, the company announced that it had entered into an Agreement and Plan of Merger, dated as of April 18, 2021, with subsidiaries of funds managed by HPS Investment Partners LLC. Upon the terms and subject to the conditions set forth in the Merger Agreement, HPS will acquire all of the company’s outstanding shares of common stock through its European Asset Value Funds in an all-cash transaction for $23.50 per share, as potentially subject to downward adjustment as set forth in the Merger Agreement. During the third quarter, and subsequent to quarter end, the company made progress toward meeting the Merger Agreement closing conditions as follows:

• On July 16, 2021, the 30-day waiting period under the HSR Act expired with respect to the transactions contemplated by the Merger Agreement.
• A Special Meeting of Shareholders was held on August 4, 2021, whereby the Company’s shareholders overwhelmingly approved the transaction, with over 99 percent of voted shares supporting the merger.
• On October 8, 2021, Marlin Business Bank entered into an agreement whereby a FDIC-insured depository institution agreed to acquire Marlin Business Bank’s portfolio of brokered deposits held through the Depository Trust Company. Subject to regulatory approval, the deposit transfer, which is expected to consist of all of Marlin Business Bank’s then-remaining deposits, is expected to occur in late December 2021 or early January 2022.

Results of Operations
Total sourced origination volume for the third quarter of $98.7 million was up 44.1 percent from a year ago. Net Investment in Leases and Loans was $793.2 million, down 6.3 percent from third quarter last year, while total managed assets stood at approximately $939.4 million, down 15.2 percent from the third quarter last year.

Net interest and fee margin as a percentage of average finance receivables was 8.51 percent for the third quarter, up 9 basis points from the second quarter and down 36 basis points from a year ago. The company’s interest expense as a percent of average total finance receivables was 129 basis points in the third quarter of 2021 compared with 138 basis points for the prior quarter and 203 basis points for the third quarter of 2020, resulting from lower rates and a shift in mix, as higher rate long-term debt pays down.

On an absolute basis, net interest and fee income was $17.1 million for the third quarter of 2021 compared with $20.5 million in the third quarter last year.

Marlin recorded a $1.2 million provision for credit losses net benefit in the third quarter of 2021, compared to $9.9 million provision net benefit in the second quarter, and $7.2 million provision net expense in the third quarter of 2020. The provision release in the third quarter of 2021 reflects better than expected portfolio performance, continued positive performance trends, and an improved macroeconomic outlook.

Non-interest income was $3.6 million for the third quarter of 2021, compared with $3.5 million in the prior quarter and $4.2 million in the prior year period. The year-over-year decrease in non-interest income is primarily due to a decline in Syndication related servicing income, gain on sale of leases, and Insurance premium revenue.

The company recorded a $2.0 million tax expense in the third quarter, representing an effective tax rate of 27.1 percent. In the second quarter of 2021, the Company recorded a $3.5 million tax expense representing an effective tax rate of 25.3 percent, and in the third quarter of 2020, the Company recorded a $0.5 million tax expense representing an effective tax rate of 16.1 percent.

Portfolio Performance
Allowance for credit losses as a percentage of total finance receivables was 3.35 percent at September 30, 2021, compared with 3.47 percent at June 30, 2021.

For the three months ended September 30, 2021, the company recorded a $1.2 million provision for credit losses net benefit, compared with $7.2 million provision net expense recognized in the third quarter of 2020 and a $9.9 million provision net benefit recorded for the second quarter of 2021. The provision release in the third quarter of 2021 was primarily due to positive trends in portfolio performance as well as positive changes in the outlook of macroeconomic assumptions to which the reserve is correlated.

Equipment Finance receivables over 30 days delinquent were 76 basis points as of September 30, 2021, down 6 basis points from June 30, 2021, and down 137 basis points from September 30, 2020. Working Capital receivables over 15 days delinquent were 149 basis points as of September 30, 2021, up 113 basis points from June 30, 2021, and down 244 basis points from September 30, 2020. Annualized third quarter total net charge-offs were 0.59 percent of average total finance receivables versus 0.60 percent in the second quarter of 2021 and 4.54 percent a year ago.